Financial Literacy

The first time the high school business teacher taught a unit on personal finance, he used a commercial program that simulated individual life situations for each student. Each was given a job, an income, and a family situation (single, married, married with kids), and each had to devise a personal budget.

The teacher was astounded by the results of the unit. Hardly any of the students understood that their budget was a real function of how much money they made, not how many things they wanted. Many of them were surprised that the truck they thought was so cool would actually cost more than their entire year’s salary! They didn’t understand how credit cards really worked, what an APR was, nor why a good credit score mattered. It was an eye-opening experience for the teacher and for the students.

As a result of this experience, the teacher designed his own personal finance course for students and presented it to the Board of Education. He suggested that the course be required for all seniors, and after he piloted it for a year, the board agreed. While students were not excited about adding another course to a senior year that was mostly tying up loose ends for some of them, in the end nearly all agreed that it was one of the most immediately useful courses they had taken in high school.

Financial literacy has become a hot topic in schools, particularly during this continuing recession. Of course, people who are financially literate can still lose their jobs and their homes, but knowing about money can help kids do a better job on the things they can control.

If you have kids who were in college during the 90s, you may be familiar with credit card companies’ execrable habit of offering credit cards to kids in school or recently graduated – kids with little understanding of credit and no means of paying off their charges. So they used the card, couldn’t make they payment, were charged an astronomical late fee which they couldn’t pay, and the cycle continued until they ended up owning $4000 on a card with a $2000 limit. Luckily, recent legislation prohibits that execrable practice, but kids still need to know how credit works.

President Obama’s Advisory Council on Financial Capability recommends that students should take a course in financial literacy. Currently, only 13 states require such a course, and a study at the University of Wisconsin found that only 20% of teachers surveyed felt competent to teach such a course.

While some insist that it’s the parent’s responsibility, not the school’s, to teach kids how to handle money, Laura Levine of Mediaplanet, writes in USA Today that it’s important to remember that many parents themselves don’t have the expertise to teach their own kids. Financial education, she says, helps level the playing field for students whose parents may be “un-banked” or under-banked.”

“The weakened state of our economy simply underscored the urgency for more, better, and earlier financial education,” Levine writes. What we want to do is teach students “while they are still forming their attitudes, beliefs, and monetary habits, and before they’ve had to learn through costly mistakes.”

Making sure our high school graduates have an understanding of personal finance should be one of our goals. We know what happens when they don’t.